Effective Governance of Colorado Owner Associations

Basic Nonprofit Governance – The Authority of the Board as Representatives of Owners

In addition to State and Federal Constitutions and other laws, governance issues for Colorado owner associations are primarily dictated by the Colorado Common Interest Ownership Act (“CCIOA”), the Colorado Revised Nonprofit Corporation Act (“Nonprofit Act”) and the association governing documents for the community (i.e. Declaration, Articles of Incorporation, Bylaws, Rules, Regulations, Policies and Procedures of the Association).

Under basic nonprofit corporate governance, the Board of Directors (“Board”) are the representatives of all the owners within the community. The Board in turn elects the officers of the association, sets policy, and makes major decisions of the association, subject to rights reserved to the member in the governing documents. The Board and/or officers also contract with the association’s managing agent, the association’s attorney and other vendors. The managing agent implements the policies and decisions of the Board.

Effective Owner-Controlled Boards

Responsible Board members understand their fiduciary responsibilities under the Nonprofit Act. Primarily Board members must follow a standard of conduct to: 1) act in good faith; 2) act with the same care that an ordinarily prudent person in a like position would exercise under similar circumstances; and 3) act in a manner the Board member reasonably believes is in the best interest of the association.

Common characteristics that successful and responsible Boards exhibit include: 1) engaging, maintaining, and supporting a professional community association manager; 2) serving the interests of owners and the community; 3) seeking unanimous Board actions; 4) educating owners, while building consensus for Board decisions; 5) making timely and efficient Board decisions; and 6) listening to concerns of owners, residents and occupants.

A good Board can become great when Board members: 1) stay informed and knowledgeable about common interest communities, HOAs, their community, and governing documents; 2) exercise independent judgment; 3) obtain independent advice; 4) dedicate the time required to be an effective Board member; 5) attend and participate in Board meetings; 6) stay alert for changes; 7) focus on and connect with the community; 8) organize or sponsor social events for the community; 9) recognize and value owners, community volunteers, task forces and committees; 10) apply the vision/basis of the community when making decisions; 11) focus on policy; 12) allow/require management to implement policy; 13) know their duties, their documents, and honor both; 14) are thoughtful and careful; 15) budget adequately and expend member monies prudently; 16) apply risk management practices; 17) stay adequately insured, without gaps in coverage and consistent with CCIOA and the governing documents; 18) guide management; 19) avoid special treatment; 20) facilitate process by leading owners to consensus; 21) emphasize reasonableness; 22) solve problems; 23) survey the owners; 24) measure the success of the community; 25) support final decisions of the Board; 26) critique in private; 27) reach out to the owners; 28) lead to or create a new vision for the community; 29) engage knowledgeable and competent vendors; 30) have a plan for the community; and 31) set and uniformly follow policies and procedures.

Effective Governance Begins with the Developer, the Governing Documents and the Initial Developer-Controlled Board

The developer (or declarant) had the original governing documents for the community drafted. The original governing documents may have been amended or amended and restated by the association. Typically, the governing documents can be characterized as follows: 1) Good − these documents are workable in the short term, with amendments to be made as needed, 2) Bad − these documents, if politically viable, should be considered for amendment, and 3) Ugly − these documents should be amended. The Board should reach out to owners to build consensus for the amendment process.

Both CCIOA, if applicable, and the original governing documents allow for an initial period of declarant control of the association Board. CCIOA requires the declarant gradually turn over Board control to the owners as units are sold or time expires.

The actions of or the failures of the developer controlled Board set the initial tone for governance of the community and the association. The following are key areas where action by the developer-controlled Board lays the groundwork for responsible governance by a future owner controlled Board: 1) Selecting and retaining a “professional” managing agent; 2) Establishing and maintaining a budget that adequately funds association services; 3) Using the section 303(4) CCIOA budget process to educate the owners/members on the costs of services and operations of the association; 4) Selecting and retaining knowledgeable vendors (i.e. landscape maintenance, snow removal, exterior building maintenance, roofing contractors, association attorney, association accountant, insurance agent, reserve specialists, etc.); 5) Collecting assessments; 6) Enforcing covenants and rules; and 7) Conducting timely and substantive owner and Board meetings.

9 Required Governance Policies of Colorado Owner Associations

Colorado owners associations subject to CCIOA, including timeshare and club associations, are required to have nine written responsible governance policies and procedures on the following topics, as of the dates indicated:

Disputes between the Association and Unit Owners. A copy of this policy must be made available to an owner on request. (5-26-06) [Source: SB 06-89]

Reserve Studies and Reserve Funding (8-5-09) [Source: HB 09-1359]

Practice Pointers on the Drafting and Revision of Policies, Rules and Regulations

A Board should first determine whether or not there is a need to adopt policy or rule by asking the following questions:

Does the rule seek to further the association/community purpose to maintain, preserve, enhance and protect the property values of the community, promote harmonious community living, and preserve the common scheme and harmonious design of the community?

Is the problem the rule seeks to remedy of sufficient consequence to justify creating a policy or rule – what are the tradeoffs?

Are the existing governing documents, policies, and rules inadequate to address this problem?

What are the immediate and long term implications of the rule?

Will the rule be favorably received by the owners?

Does the Board have the authority under the governing documents and CCIOA to adopt the rule?

When drafting and revising association policies or rules, the owners, residents and occupants are more likely to accept and cooperate with policies and rules that 1) do not violate a fundamental constitutional right (e.g., freedom of speech); 2) are not inconsistent with applicable federal, state and local statutes; 3) are consistent with the association's governing documents (i.e., a policy or rule cannot prohibit what the Declaration or covenants permit); 3) are reasonably related to the operation and purpose of the association; 4) are fair, not overly broad, or more punitive than necessary to achieve reasonable and legitimate association goals; and 5) are concise and clearly define the scope of the rule by specifying “who” and “what” is covered by the rule.

Before adoption, the Board should have the policy or rule reviewed by the association’s legal counsel to make sure it does not conflict with the governing documents or Colorado law. Also, the Board should consider giving notice of the proposed policy or rule to the owners which may build consensus and support or help identify significant community concerns and objections about the proposed policy or rule.

Once adopted, the association must notify owners, residents and occupants of the new policy or rule. The association should take steps to ensure that the policy or rule is used and enforced consistently and uniformly against all owners, residents and occupants.

Owner’s Right to Participate at Board Meetings.

Since 2005, owners have a statutory right to participate in Board meetings. This right applies to all common interest communities and Colorado owner associations subject to CCIOA, except those associations/communities that include timeshare units. Owners have the right to speak at Board meetings before the Board takes formal action on any discussion item. If more than one person desires to speak and there are opposing views, the Board must allow a reasonable number of persons to speak on each side of the issue. [Sources: SB 05-100 and SB 06-89].

To effectively comply with these requirements, associations should adopt and maintain an owner participation or conduct of meetings policy that confirms an owner's right to participate and outlines the procedures for owner comments at both Board and member meetings.

Notice Requirements for Owner Meetings

All common interest communities and Colorado owner associations subject to CCIOA, including timeshares and club associations, are required to give notice of member meetings. Notices of member meetings must state the time and place of the meeting and items on the agenda, including the general nature of any proposed amendment to the declaration or bylaws, changes to the budget, and removal of a Board member or officer. [SB -5-100]

Posting of Owner Meetings, Website Postings and Notices to Owners by Email

Effective January 1, 2006, all common interest communities and Colorado owner associations subject to CCIOA, including timeshare owner associations and club associations, are required to physically post the notice of any annual or special owner meeting in the community, if feasible and practicable. Additionally, notice must be posted on the association website, if any, and should be sent by email to all unit owners when the association has the capability. (The email requirement does not apply to timeshare owner associations.) [Source: SB 05-100]. SB 06-89 clarified that this requirement only applies to member meetings and does not apply to Board meetings. [Source: SB 06-89]

Associations should adopt and maintain policies, guidelines or rules that specify where physical postings are to occur, identify whether the association maintains a website and how member meeting postings will occur on the website, and address whether the association has the ability to send email notices to members.

At least once a year, all common interest communities and Colorado owner associations subject to CCIOA, except those associations/communities that include timeshare units, are required to provide education to their owners. The cost of providing such owner education must be accounted for as a common expense. [Source: SB 05-100]

The Board has discretion on how to comply with this requirement. However, the content must relate to the general operations of the association and the rights and responsibilities of owners, the association, and its Board members. This may include presentations at the annual owner meeting, educational articles in the association newsletter or other flyers, offering a class, having a new homeowner orientation program, posting information on the association website, etc.

The association should adopt and maintain an education policy that covers when and how education will be offered to owners. While associations must offer owner education, there is no liability to the association when owners do not participate in the education offered.